Facts

(1)        "Facility Fees" are charged by NEC to the promoter of the event for which NEC is selling the tickets on the promoter's behalf in consideration for NEC’s agency services to the promoter.

(2)        “Booking Fees" are charged to the ticket-buying public by NEC in relation to ticket sale transactions carried out over the telephone and the internet. They are set at around 10% of the price of the ticket, or higher for events where the market will bear a higher amount.  The only method of payment accepted by NEC for sales by telephone or internet is credit card or debit card.

(3)        "Transaction Fees" are also charged to the ticket-buying public by NEC, in addition to the Booking Fee. NEC describes this charge as follows on its website: "A transaction fee is a one-off charge per order. It covers the administration costs and overheads associated with each ticket sale."

Law

“Without prejudice to other Community provisions, Member States shall exempt the following under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of the exemptions and of preventing any possible evasion, avoidance or abuse;

…

(d)     the following transactions:  

 …  

3     transaction, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments, but excluding debt collection and factoring;”

Evidence

(1)        Mr Phillip Mead adopted and confirmed a witness statement dated 29 February 2008 and gave oral evidence.  Mr Mead was appointed managing director of NEC in 2007, thus his appointment post-dated the events relevant to the Disputed Decision.  However, Mr Mead had previously been an executive at the Scottish Exhibition and Conference Centre which had been the subject of a similar VAT dispute during his time there (and which company was the taxpayer in one of the main case law authorities relevant to these proceedings).  He had also been chairman of The Arenas Association – the trade association for large arena operators.  Mr Mead was thus able to speak as to the general position of arena operators in relation to the matters in dispute.  Mr Mead also confirmed that he agreed with the contents of a witness statement dated 29 February 2008 by Mr Saadat Afzal.  Mr Afzal was general manager of NEC from 1990 until recently.  NEC had decided not to require Mr Afzal to attend as a witness, as he now held a new appointment unconnected with NEC and was busy with the affairs of his new employer.  NEC acknowledged and accepted that this denied HMRC the opportunity to cross-examine Mr Afzal.

(2)        Mr Peter Monks adopted and confirmed a witness statement dated 30 May 2012 and gave oral evidence.  Mr Monks is currently assistant general manager of NEC and has worked there since 1998.  Like Mr Mead, Mr Monks confirmed that he agreed with the contents of Mr Afzal’s witness statement.

(3)        For HMRC, Mr Ian Chalmers adopted and confirmed a witness statement dated 22 August 2011 and gave oral evidence.  Mr Chalmers was one of the HMRC officers dealing with NEC’s VAT affairs.

Documents

“The Cost of Booking

Ticket Prices

Ticket prices are set by the (independent) Promoters and Organisers of the concerts and events which are staged at the venues of The NEC Group.  The Promoters and Organisers distribute tickets for sale through various Ticket Agents and in effect The NEC Group Box Office simply acts as another one of these Agents.

Booking Fees

Booking fees are charged by The NEC Group Box Office to help offset operational costs such as postage, credit card commission, labour, telephony and IT maintenance charges.  The NEC Group regularly reviews the level of booking fees in order to remain as competitive as possible with other comparable venues across the UK.

PLEASE NOTE: For concerts and events staged at the venues of The NEC Group, the Group chooses to waive the booking fee if tickets are purchased at a Group venue Box Office using cash, cheque or debit card (eg Switch or Visa Delta).

Booking Online

The NEC Group has invested significant resources in The Online Box Office and booking fees are charged to help offset the on-going maintenance and development costs of the Internet Booking facility, as well as the usual operational costs.  The NEC Group regularly reviews the level of booking fees and is currently evaluating the case for charging lower booking fees to Customers booking via the internet.”

“Tickets may be subject to a booking fee and/or postage fee. BOOKING FEE CHARGES

Please check your tickets before leaving the counter as mistakes cannot always be rectified.

Some concerts and events may be subject to a 'transaction fee' instead of a booking fee. This fee is charged per transaction, irrespective of the number of tickets bought per transaction. Postage fees will still apply.

Coach companies and groups of 20 or more people usually pay 50% of the telephone booking fee whether by telephone or counter sales. Mixed payments ie credit cards/cheque and credit card/cash will be subject to booking fee for credit card counter sales.

Cheques can only be accepted up to the value of the accompanying cheque card.

ATTENTION IS DRAWN TO THE TERMS AND CONDITIONS PRINTED ON ALL TICKETS. A COPY OF THE TERMS AND CONDITIONS IS AVAILABLE ON REQUEST”

“Booking Fee FAQ and Phone Script

Customers can often find booking fees and transaction fees confusing when purchasing tickets. When breaking down the fees associated with a booking and you are asked by a customer to explain what these fees are for, please use the below explanations to assist with this. Please also reassure the customer that we regularly review our booking and transaction fees to ensure The Ticket Factory offers customers better value than other ticket agents and our policy is to always clearly identify any applicable fees.

Information regarding our booking and transaction fees is also available for customers on The Ticket Factory website.

Why do I pay a booking fee? In order to facilitate the processing of credit/debit card payments for bookings, ticket agents charge per ticket booking fees for the services they provide. It is also the ticket agent (not the Promoter) that accepts the risks associated with processing transactions by credit/debit card and, in cases of fraud for example, is required to refund the full ticket price as well as the booking fee to the Customer even when obliged to pay the Promoter as though the sale were genuine.

Why is the booking fee separated? With regard to the prices and fees charged for tickets there is understandably a common misconception that events are promoted by the NEC Group venues they are staged at. Events are in fact brought to venues by independent Promoters and Organisers who are responsible for all aspects of the production including setting ticket prices. The ticket income belongs to the Promoter and is calculated to take into consideration the costs of staging the event and payments to the participants/artists etc. The Promoter distributes tickets for sale through ticket agents and The Ticket Factory, as the official box office for the venues of The NEC Group, simply acts as one of these ticket agents.

Why do I pay a transaction charge? Other additional transaction fees, performance fees or delivery fees including special delivery, are charged per order to help offset other operational costs and overheads associated with ticket sales e.g. event administration including inventory control, ticket stock/stationery, access control systems, collection facilities and postage and/or packaging costs as applicable.”

“The above [concert] is being promoted at the National Exhibition Centre. The purpose of this Agreement is to appoint NEC as an agent for the sale of all tickets for the event, The appointment is made and accepted subject to the following terms and conditions:-

1  NEC will arrange for the production of the tickets to the standard specification decided by NEC as detailed in the Licence Agreement and including NEC's terms and conditions of sale as from time to time in force. The ticket prices will be inclusive of VAT and any booking fee the promoter may wish to make (as made known in writing)  

2 NEC does not have any liability to account for VAT on gross tickets sold through NEC Limited. The Promoter is responsible for the accounting of VAT to HM Customs & Excise on the value of gross tickets (excluding booking fee charges that NEC levy's under clause 3 of the agreement)

3 NEC reserves the right to charge a booking fee on all tickets sold and to appoint sub­agents. The number of tickets sold will be limited to six per person. The booking fee will be as follows:-

Ticket Prices Phone Booking Fee

(Per ticket)

£9.99 & under £1.00

£10.00 - £19.99 £2.00

£20.00 - £29.99 £3.00

£30.00 and over 10% of ticket price or as advised

The Booking Fee will only apply to telephone, credit card and postal bookings and tickets purchased through sub-agents.

…

10     The Promoter agrees to keep NEC fully indemnified in respect of all claims, proceedings, demands, costs and expenses brought or made against NEC or born or incurred by NEC and which in any way arise out of the printing and sale of tickets by NEC in accordance with this Agreement including, but not limited to, any postponement or cancellation of the event and dishonouring of cheques, postal orders and other methods of payment, provided that this indemnity shall not apply to matters which are caused by negligence on the part of NEC or by a failure by NEC to observe its obligations under this Agreement.”

“2.1 The Ticket Factory [ie NEC] is appointed by the Organiser [ie the promoter] irrevocably to act as agent for the Organiser to offer for sale and sell tickets for the Event in accordance with the terms of this Agreement and on the basis that all such tickets sold evidence a contract as between the purchaser of the Ticket ('Customer") and the Organiser ("Customer Contract”), and not as between the Customer and the Ticket Factory.  The Ticket Factory shall collect the proceeds of sale of all such Tickets on behalf of the Organiser and account to the Organiser therefor in accordance with Clause 8.

…

4.2                The Organiser hereby authorises The Ticket Factory to collect the Booking Fee and the Transaction Fee for The Ticket Factory's own account in addition to any funds collected by The Ticket Factory on behalf of the Organiser in relation to Ticket Sales.”

“Why does a chargeback occur?

Chargebacks can arise for many reasons some of which are detailed below: -

·        errors in processing or procedure e.g. an invalid account number was quoted on the transaction receipt

·        fraud-related e.g. the genuine cardholder did not participate in the sale

·        cardholder disputes e.g. the goods delivered differed from the goods ordered

·        documentation-related e.g. failed to respond to a Request for Information letter within the stated timescales

·        authorisation-related e.g. a valid authorisation code was not obtained and the transaction is over the floor limit of which you have been advised

Credit card and debit cards do not offer a guaranteed form of payment for goods or services. Every transaction undertaken can be subject to return by the card issuer even where authorisation had been obtained and all standard sales procedures, outlined in your Streamline contract, have been followed. The chargeback process is regulated by the Card Schemes; Visa International and MasterCard International. Liability for the chargeback must be accepted unless it can be proven that the chargeback is invalid in accordance with the Card Scheme rules.

Where a chargeback has occurred due to a dispute between you and your customer (the cardholder) and no resolution between the two parties can be reached via the Member Banks, the Card Scheme has overall authority to decide with whom the liability for the transaction will lie. At this point we would have no further recourse to the Card Issuer via the Card Scheme rules.”

Mr Afzal’s evidence

Mr Mead’s evidence

Mr Monks’ evidence

“Ticket service charges

Official ticket sellers generally act on behalf of event promoters, venues or performers. The typical way that most ticket sellers and secondary websites earn money is through the additional service fees they charge customers. These extra service charges create a contract between you and the ticket seller, so they're obliged to get you your tickets in time.

It’s not only ticket agents that charge service fees. Theatres can also add a service charge if you use their online or phone services to book tickets. The same applies for many major event venues.

Ticket seller charges

There are typically two types of extra fees charged by ticket sellers on top of a ticket’s face value:

·        A booking fee or service charge for every ticket in your order.

·        A postage charge for each complete order.

There is no standard way to calculate a service charge for particular tickets. Promoters and agents agree on the fees for each individual event.

Even opting to collect your tickets at a venue's box office rather than having them delivered to your door often attracts a charge from official ticket sellers, as does email delivery of tickets where you print them out yourself, such as Ticketmaster’s Ticketfast service.

Avoid ticket service charges

Often, the first a consumer hears about a ticket seller's service charges is when they go through to a sales site or phone line to book the tickets, so don't rely on promotional advertising to give you the full price you’ll pay when you buy tickets.

There should always be an option to buy tickets at face value without paying extra service charges. For many events the only way to avoid paying any extra charges is to turn up at the venue's box office.  Even then, pay cash to avoid a service charge, as some venues will charge you a fee for paying by credit card.

The term used to describe extra charges caries among different ticket sellers.  For example, a booking fee or service charge can also be a ‘processing fee' or 'commission'. The delivery fee can also be known as a “transaction fee' or 'order processing fee'.”

(1)        Providing information on ticket availability, performance times and ticket pricing and seating – This information was all available free-of-charge on the website or over the phone, even if the customer decided not to proceed to a ticket booking.  The Booking Fee was not charged for this.

(2)        Allocating available seats to the customer – this service was provided also to a person buying tickets for cash at the box office.  The Booking Fee was not charged for this.

(3)        Issuing the tickets – this was covered by the Transaction Fee.  The Booking Fee was not charged for this.

(4)        Making arrangements with the promoter for taking and passing on payments - The Booking Fee was not charged for this.

(1)        He accepted that the wording on the webpage varied over time but felt that the terms and conditions were broadly the same for all customers. 

(2)        He did not accept that the reference on the website to internet development implied that the purpose of the Booking Fee was to cover internet costs.

(3)        The reference to a “postage fee” in the Terms & Conditions was to extra costs such as special form of delivery, not just ordinary postage.

(4)        The practice on charging fees on group bookings varied from promoter to promoter. 

(5)        He acknowledged that until 2007 Booking Fees were charged on cheque payments.

(6)        It was correct that Transaction Fees were charged per transaction while Booking Fees were levied per ticket, but that was general industry practice and the customer expected this.

(7)        The “CC Admin Charge” provided for in the typical exhibition contract was just part of the charge made to the promoter by NEC, designed to recoup some of the costs of providing the card terminals and so on.  It was broadly equivalent to the charge made to NEC by Streamline.

(8)        In the past Booking Fees had been charged where tickets were sold through a subagent – an example would be a Tourist Information Centre.  It would not be feasible for subagents to sell for cash and remit to NEC – a card would have to be used by the customer.

(9)        The reference to a “booking fee” for the promoter in the typical concert contract was just a way for the promoter to carve out a fee before monies were split with the artiste.  It was not related to NEC’s Booking Fees.

(10)     The reference in the terms & conditions to different rates of fees between phone and counter bookings reflected the fact that counter booking customers collected the tickets in person and so NEC did not incur postage costs.  When the Transaction Fee was introduced later, this covered this aspect. 

(11)     The rationale for waiving the Booking Fee if car parking was purchased was simply to promote “upselling” to customers while they were receptive – it was good business to sell car parking in advance.  The rationale for waiving the Booking Fee on purchases and redemptions of gift vouchers was to encourage uptake of gift vouchers.

(12)     On the mechanics of card processing, it was correct that there was no direct link between NEC and the customer’s card issuer.  NEC’s booking system (Audience View) was linked to NEC’s merchant acquirer (Streamline) by an interface called Servebase.  If NEC had wished to know the identity of a customer’s card issuer then that was apparent from the first four digits of the card number.  Transactions were batched and sent to Streamline.  Streamline would electronically transfer funds to NEC’s bank account (less its own fees). 

(13)     The risk of chargebacks was real and substantial.  Card fraud was an everyday risk for all businesses.  Assuming a typical booking fee of 10%, the exposure on a £30 ticket was £33 as against a Booking Fee of £3.  While the strict contractual position between the promoter and NEC might be that NEC was liable to chargebacks only if it was negligent, in practice promoters never accepted liability for chargebacks and would expect NEC to bear the full costs.

Mr Chalmers’ evidence

“Summary

The House of Lords has refused HMRC's petition to appeal the Court of Appeal judgment in Bookit … and HMRC will not be seeking leave to appeal the judgment of the Court of Session in the case of SEC …

The effect of the end of litigation in these two cases is that debit and credit card handling services provided by agents are VAT exempt where a key identified component is present in the service.

Claims held pending the outcome of these cases will now be reviewed for payment and any assessments raised by HMRC for under-declared tax will be withdrawn where appropriate.

Background

The Bookit case concerned the supply of Odeon cinema tickets. Customers wishing to purchase cinema tickets remotely, eg by phone or Internet, were redirected to Odeon's agent, Bookit, who charged the customer an additional fee over and above the price of the ticket for their service. Bookit contended this fee was for credit or debit card handling services and was VAT-exempt as a transaction concerning payments or transfers.

The tribunal found that Bookit was providing a taxable card handling service to the customer in return for the additional fee. The High Court, in overturning the tribunal's decision, found that Bookit was carrying out an exempt card handling service.

The Court of Appeal, in upholding the High Court judgment, found that the supply by Bookit to the customer included the following components—  

—     obtaining the card information with the necessary security information from the customer;  

—     transmitting that information to the card issuers;  

—     receiving the authorisation codes from the card issuers; and  

—     transmitting the card information with the necessary security information and the card issuers' authorisation codes to Girobank.

The Court found that the tribunal had been correct in finding components (i) to (iii) to be taxable, but because the fourth component was part of Bookit's service to the customer, and had the effect that funds were transferred to its account with Girobank, exemption was available to Bookit.

The SEC case concerned the supply of tickets to events held in the Scottish Exhibition and Conference Centre in Glasgow. SEC acted as agent of the promoter in the selling of tickets and charged an additional fee to customers on tickets that were paid for by credit and debit card. SEC contended this fee was for card handling services and was VAT exempt.

The tribunal found in HMRC's favour, stating that SEC was providing a single taxable booking service, with the taxable card handling service representing an ancillary aspect enhancing the main service. The Court of Session overturned the tribunal decision, finding that SEC was carrying out an exempt card handling service. The Court based its judgment on the decision of the Court of Appeal in Bookit and on an assumption of similar facts. HMRC do not therefore draw a distinction between the two judgments.

Implications of the judgments

NEC’s case

(1)        Direction of Supply Issue: HMRC argue the Booking Fees are charged for a taxable supply made by the promoter to the customer, with NEC acting merely as an agent of the promoter in the collection of the sums charged; to the extent that NEC retains Booking Fees from the sums it accounts for to the promoter, such sums are for a single supply by NEC to the promoter or, at least, not an exempt supply.

(2)        Single Supply Issue: HMRC argue there is a taxable supply by NEC to the customer which is an overall (ie single) ticket booking service.

(3)        Exemption Issue: HMRC argue the Booking Fees are consideration for a separate supply by NEC to the customer but such supply does not fall within the scope of the exemption from VAT.

Direction of Supply Issue

“Both in fact and in law the appellant provides two separate services to customers who pay for tickets by credit card or debit card. The appellant acts as agent for the promoter in selling the ticket, and as principal in charging the booking fee for taking the steps necessary to effect payment by credit card or debit card. While the customer might not be aware of the detail by which this might be effected, he or she is aware that there are two charges, one for the price of the ticket and the other for the facility of payment by credit card or debit card.”

Single Supply Issue

“The primary issue for determination is the extent of the agency in terms of which the appellant acted for its promoter customers … The “box office” and telephone booking service maintained by the appellant is extensive. The contractual relationship with the promoter does not require this … The reason for this service in our view is the appellant's eagerness to promote itself as a popular venue and anxiety to develop a “customer loyalty” and “customer base” to better enable it to sell to promoters space for concerts and other entertainment … We note that the cost of this service as represented by the fee exceeds substantially the credit card charge on the transaction … It follows in our view that the range of services provided by the appellant at the box office and by telephone extends well beyond its role as agent of the promoter which is (simply) for the sale of tickets. These services are undertaken by the appellant as a principal and in its own interests … In the present case there is a booking service offering extensive customer support with a view to promoting the appellant's business and with the credit card facility representing an ancillary aspect enhancing the main service.”

Exemption Issue

“[16] By its questions the national court is asking in effect whether points (3), (4) and (5) of art 13B(d) of the Sixth Directive are to be interpreted as exempting from VAT supplies of services made to banks and their customers by a data-handling centre set up to serve the common interests of banks where those services contribute to the execution of transfers, to the provision of advice on, and trade in, securities, and to management of deposits, purchase contracts and loans and in the main are performed wholly or partly by electronic means.

…

[19] Amongst those aspects it is important to distinguish (i) the persons effecting the transactions, (ii) the way in which they are effected, (iii) the contractual links between the provider of the services and the person to whom they are provided, and (iv) the nature of the service provided by the data-handling centre.

…

[38] … points (3) and (5) of art 13B(d) of the Sixth Directive are to be interpreted as meaning that the exemption is not subject to the condition that the transactions be effected by a certain type of institution, by a certain type of legal person or wholly or partly by certain electronic means or manually.

…

[59] … the exemption provided for by points (3) and (5) of art 13B(d) is not subject to the condition that the service be provided by an institution which has a legal relationship with the end customer. The fact that a transaction covered by those provisions is effected by a third party but appears to the end customer to be a service provided by the bank does not preclude exemption for the transaction.

…

[66] In order to be characterised as exempt transactions for the purposes of points (3) and (5) of art 13B, the services provided by a data-handling centre must, viewed broadly, form a distinct whole, fulfilling in effect the specific, essential functions of a service described in those two points. For 'a transaction concerning transfers', the services provided must therefore have the effect of transferring funds and entail changes in the legal and financial situation. A service exempt under the directive must be distinguished from a mere physical or technical supply, such as making a data-handling system available to a bank. In this regard, the national court must examine in particular the extent of the data-handling centre's responsibility vis-à-vis the banks, in particular the question whether its responsibility is restricted to technical aspects or whether it extends to the specific, essential aspects of the transactions.

“67. It is to be noted that although Bookit was not paid by Odeon for its services as agent, the agency gave Bookit the opportunity to charge customers for card handling and to benefit from telephone revenue sharing arrangements.

68. The customer who rings the call centre will normally be unaware of the fact that he is telephoning Bookit rather than Odeon until after he has pressed the advanced bookings button. Even then there is nothing to tell the customer that the involvement of Bookit as principal extends beyond card handling.

69. When Bookit is finding out the customer's requirements and checking the availability of seats in accordance with those requirements, it is not in our judgment performing any service for a consideration for the customer. The recording by Mr Barnett included the employee as referring to “taking bookings”, see paragraph 24. This was a preliminary to a sale on behalf of Odeon. Odeon received nothing unless the ticket was sold. Bookit received nothing unless the card transaction followed. If matters had stopped at that point there would have been no question of any consideration being paid by the customer any more than if a retailer shows goods to a customer who after asking questions does not make a purchase.

70. The next step in Mr Barnett's transaction was that Bookit obtained the customer's card details together with his telephone number and postcode. At that point Bookit was expressly involved and Mr Barnett, the customer, by proceeding agreed to a charge by Bookit in addition to the ticket price. By providing his card details Mr Barnett agreed to his account with the issuer of the card being debited and to the payment being credited to Odeon and Bookit in satisfaction of the price of the ticket and Bookit's fee.

71. It is most unlikely that a customer would be aware of the settlement mechanism under which Girobank received payment from the card issuer and paid Bookit which in turn paid the ticket element to Odeon. The customer would however know that the transaction involved the provision of credit by the card issuer, unless the card was a debit card, and involved the transfer of money from his account with the card issuer to discharge his liability for the ticket and Bookit's fee.

72. It was not suggested by Mr McKay for Customs that when Bookit takes the customer's card details and transmits them to Girobank it is not performing a service for the customer, see paragraph 9 of the amended Statement of Case. The dispute was rather as to whether those services form part of a package described as “cinema seat booking services.”

73. We have already concluded that in providing information prior to the customer's decision to book tickets for a specific performance Bookit is acting as agent for Odeon on whose behalf it is selling the tickets. We have also concluded that when accepting payment by means of the customer's card for the tickets Bookit is also acting as agent for Odeon. As a matter of contract, Bookit is accepting the payment offered by the customer, it being a term of the contract that payment would be by card.

74. The final component of the booking services on which Mr McKay relied is sending notification to Odeon's computer system that the seats have been taken and informing the customer that the booking has been confirmed.

75. In our judgment both of those functions are performed by Bookit as agent for Odeon and neither constitutes a service supplied by Bookit to the customer. Odeon cannot properly sell a seat for a cinema performance without taking steps to ensure that the seat is kept available. If Odeon is not informed by Bookit that the seat has been sold and that payment has been made by card, Odeon's automatic machine at the cinema will not issue the ticket. Similarly Odeon cannot charge a customer for an advanced booking without informing the customer that the booking has been accepted.

76. The result is that the only supply by Bookit to the customer is of card handling services and the submissions as to application of Card Protection Plan do not fall to be considered. The fact that the card handling services would if made by Odeon be ancillary to the sale of the tickets is not relevant since the card handling services were supplied by Bookit as principal.”

“80. It is necessary to focus upon the specific services provided by Bookit to customers for the 50 pence fee. These services start with obtaining the customer's card number and details including postcode. This information is transmitted to Girobank which gives authorisation where this is required as exceeding a specified limit. The processing by Girobank of the transaction is not part of any supply by Bookit to the customer. Nor in our judgment is either the confirmation by Bookit that the card payment is accepted, this being on behalf of Odeon, or the notification to Odeon of the purchase, this again being part of the agency service to Odeon. Again we do not consider that the act of informing the customer that he should collect the ticket from an automatic machine using the card is part of the supply by Bookit to the customer, this again being a service performed as agent for Odeon, the vendor of the ticket.

81. The actual components of the supply by Bookit to the customer are therefore limited to obtaining the card information with the necessary security information and transmitting this to Girobank. It does not even include any decision by Bookit whether to transmit that information, since in deciding whether to accept a payment by card not requiring authorisation from Girobank Bookit is not performing a service for the customer but is acting as agent for Odeon.

…

86. The mere transmission of details to Girobank is essential to the completion of the transfer or payment by Girobank or the issuer, but that does not bring Bookit within item 1. The Appellant company has not satisfied us on the evidence that Bookit in transmitting on behalf of customers the required card information is itself transferring funds or bringing about changes of a legal and financial character. The transfers and financial changes are effected by Girobank and the payments are effected by the bank issuing the card.”

HMRC’s case

Direction of Supply Issue

Single Supply Issue

“[37] It is fair to say, I think, that the general trend of the recent authorities has been away from artificial splitting of transactions, and (where possible) towards a unitary or single classification which corresponds with the objective business reality of the transaction. The matter is looked at from the perspective of the average customer, not from the point of view of the supplier: see the reference to 'a typical consumer' in Levob at para 22, and compare the opinion of the Advocate General (Kokott) at para 69. One reason for looking at the question from the perspective of the customer is no doubt that it is the consideration provided by the customer for the supply which forms the taxable subject matter.

…

“[42] ... What matters in the present context is not the education provided by the school to the child, but the supply of educational services by the school to the parent. The parent is paying the school to educate his child. Participation in the scheme affects the price which he pays for that service, and entitles him to a refund, or to a full remission of fees, in certain specified circumstances. However, it is still the child's education that the parent is paying for. The economic reality of the matter, in my judgment, is that the parent is provided by the school with two payment options for the same educational service. That is how a typical parent would view the matter, and that is the appropriate level of social and economic reality at which to examine the question. The parent is offered two different ways of paying for the child's education. In my judgment it really is as simple as that.”

(1)        The customer terms and conditions stated they constituted the entire agreement, so comments in the FAQs webpage could not be imported as argued by NEC.  But even looking at the FAQs, they stated the Booking Fee was charged to offset IT development costs.  The average customer would not conclude that the Booking Fee was for credit card processing.  Also, the FAQs stated that the Booking Fees were “waived” for non-NEC venue events – that implied that charging the Booking Fee was the default position.

(2)         NEC referred to the box office call script but could not give details of dates or how it was used.  Also it was of no assistance in relation to online bookings.  What was clear, and Mr Monks had confirmed this, was that a customer was not told what the Booking Fee was for, unless they asked.  That was different from Bookit where customers listened to a recorded message which gave the relevant details.

(3)        Before 2007 Booking Fees were charged on certain cheque payments.  The customer could not believe that the Booking Fee related to non-existent card handling services.  There was a retrospective assertion that this was done to discourage cheque payments but that was without contemporaneous evidence and could have been steered by NEC’s interest in its tax appeal.  In any event, NEC’s rationale was irrelevant – the important factor was what was in the customer’s mind (per Secret Hotels and Birkdale School).

(4)        There was a contradiction in the evidence concerning chargebacks.  The promoter contracts were clear that (absent negligence) NEC was not responsible, but the witnesses had stated that NEC bore the risk of chargebacks. 

(5)        Booking Fees had been charged on subagent bookings regardless of the method of payment.  Mr Monks’ evidence on the reasons for this was speculative.

(6)        No Booking Fee had been charged where car parking was also purchased by card.  Also no Booking Fee had been charged where gift vouchers were purchased by card.

(7)        Although HMRC accepted that the actual cost of providing card facilities did not determine the nature of NEC’s supply, the fact that the Booking Fee bore no relation to such costs implied that the customer would not conclude that the Booking Fee related to the alleged card processing service.

“It appears that when the authorisation code is received by T-Mobile, T-Mobile does not know if it comes from the bank [ie the card issuing bank] or from Barclays [ie the merchant acquirer]  Mr Steller did not know if the settlement files which were batched up by Solve/SE and sent to BMS included the authorisation code or not. It appears that all T-Mobile is doing is giving back to Barclays the authorisation codes which Barclays has obtained. No transfer of funds has taken place at this stage, it being assumed by T-Mobile that the transaction will proceed. It is only when the information has been sent to the issuing banks that money is received.”

“28. In order to determine whether swift services satisfy that criterion it is necessary to examine, first, whether the provision of those services is capable of giving rise to changes of a legal and financial character similar to those resulting from interbank payments or transactions in securities themselves and, second, whether SWIFT's responsibility towards its clients is limited to technical aspects or whether it extends to specific, essential aspects of those financial transactions.”

“32. It is also not disputed that, although orders for transfers of funds or those which are intended to effect certain transactions in securities must be transmitted via computer systems approved by SWIFT in order to guarantee their security, ownership rights as regards those funds or, as the case may be, those securities is transferred only by the financial institutions themselves in the context of legal relations with their own clients.

33. It is also clear from the case law cited in paras 24 to 26 of this judgment that the legal and financial changes which are such as to characterise a transaction exempt from VAT result only from the transfer of ownership, actual or potential, in funds or securities, without it being necessary for the transaction thereby performed to be effective against third parties.

34. Accordingly, if swift services are electronic messaging services which are simply intended to transmit information, they do not by themselves perform any of the functions of one of the financial transactions referred to in art 13B(d)(3) and (5) of the Sixth Directive, that is to say those which have the effect of transferring funds or securities, and do not therefore possess the character of such transactions.”

(1)        First, that there was no pre-existing debt – but there was nothing in the ECJ judgment in AXA to state that was essential.  It was not clear from AXA whether the direct debits were in advance or in arrears.  There was no guidance as to whether collection of an “immediate debt” (as termed by NEC) was debt collection for the purposes of art 13B(d)(3). 

(2)        Second, that debt collection could be performed only on behalf of a creditor - again, there was nothing in the ECJ judgment in AXA to that effect.  Although the Upper Tribunal decision in Paymex had been cited to the Court of Appeal in AXA, it had not been approved. Rather, the Court of Appeal had specifically acknowledged (at [51] – quoted at [104] above) that the scope of the debt collection carve out was unclear and required further input from the ECJ.  In looking at the purpose of the debt collection carve out, the ECJ’s decision in Tierce Ladbroke v Belgium (Joined Cases C-231/07 & C-232/07 – available only in French but translated by HMRC) was that this was “to lessen the difficulties connected with determining the tax base as well as the amount of VAT which is deductible, and to avoid an increase in the cost of consumer credit.”  In the present case there was no difficulty in calculating the VAT in relation to the various charges levied by NEC, and to do so would not affect the cost of consumer credit.

Consideration and Conclusions

The Appeal and the Evidence

Approach

“The relevant questions are (i) what services were supplied by Bookit to the customer and (ii) did those services attract the exemption for which art 13B(d)(3) provides.” 

“(1) whether, on a proper view of the evidence, the booking fee is charged for the facility of paying by credit card or by debit card, and not for some other facility; and (2) if so, whether the booking fee falls within the scope of the exemption from value added tax … provided for by the legislation ...”

(1)        What services were supplied by NEC to the customer for the Booking Fees?  This has two components:

(a)        the Direction of Supply Issue (as described at paragraph [49] above); and

(b)        the Single Supply Issue (ditto).

(2)         Do the Booking Fees attract the exemption provided by art 13B(d)(3)?  This is the Exemption Issue (as described at paragraph [49] above) and also has two components:

(a)        whether the criteria in SDC were met; and

(b)        whether the “debt collection” carve out from art 13B(d)(3)  applies.

First question: What services were supplied by NEC to the customer for the Booking Fees?

Component One: Direction of Supply Issue

“Both in fact and in law the appellant provides two separate services to customers who pay for tickets by credit card or debit card. The appellant acts as agent for the promoter in selling the ticket, and as principal in charging the booking fee for taking the steps necessary to effect payment by credit card or debit card. While the customer might not be aware of the detail by which this might be effected, he or she is aware that there are two charges, one for the price of the ticket and the other for the facility of payment by credit card or debit card.” 

Component Two:  Single Supply Issue

(1)        Booking Fees were not charged where customers purchased (or redeemed) gift vouchers, paying by card.  We accept the witness evidence that this was done to enhance sales of gift vouchers.  We analyse this as being an instance where strictly a Booking Fee was due but for good marketing reasons it was effectively waived or foregone.

(2)        Booking Fees were not charged where customers purchased tickets at the box office (ie in person), paying by debit card.  This practice changed in August 2003 (ie after the Appeal Period).  On the FAQ webpage this was described as a waiver of the fee: “For concerts … staged at venues of The NEC Group, the Group chooses to waive the booking fee if the tickets are purchased at a Group venue box office using … debit card.”  Again, we analyse this as being an instance where strictly a Booking Fee was due but it was waived.

(3)        Booking Fees were not charged where customers also purchased car parking, paying by card.  We accept the witness evidence that this was done to encourage car park booking at the time of ticket purchase.  Again, we analyse this as being an instance where strictly a Booking Fee was due but for good marketing reasons it was effectively waived or foregone.

(4)        Booking Fees were charged where customers purchased tickets via subagents.  We accept the witness evidence that subagents such as tourist offices could only deal with NEC via customer credit/debit cards, as collecting cash or cheques and accounting later would be too cumbersome.  Accordingly, this was not really an exception – all subagent transactions were card transactions.

(5)        Booking Fees were charged where customers paid by cheque by post - but not if they paid at the box office by cheque.  This practice changed in September 2007 (ie after the Appeal Period).   The witness evidence was that the number of tickets paid for by cheque by post was very small (around 1% of transactions); we accept that but we are here more concerned with whether the fact of the Booking Fee being charged on some cheque purchases materially detracts from NEC’s contention that the Booking Fee was consideration for card processing services.

Second question: Do the Booking Fees attract the exemption provided by art 13B(d)(3)? 

First Component: whether the criteria in SDC were met

(1)        A transfer is the execution of an order for the transfer of a sum of money from one bank account to another;

(2)        it involves a change in the legal and financial situation existing between the person giving the order and the recipient and between those parties and their respective banks;

(3)        there is no requirement for the supplier to be a bank;

(4)        there is no requirement for a direct contractual link between the person executing the transfer and the ultimate customer of the bank; and

(5)        the test whether a transaction constitutes a transfer for the purposes of the Sixth Directive is a functional one, which asks whether the transaction in question is one which has effected the movement of money and changed the legal and financial situation of the parties - the cause of the transaction is not in itself a relevant consideration.

  “[55] With regard to the tribunal's reasoning, HMRC first submit that the authorities do not support the proposition distilled from them by the tribunal in para 21 of the decision. The only authority which did not involve a party which was clearly within the banking sphere was Bookit, but Bookit was a case that turned on its own special facts. Girobank had outsourced certain of its own functions to Bookit (namely, the functions of obtaining, in respect of each transaction, an authorisation code from the relevant card issuer bank). Accordingly, Bookit was not simply giving instructions to Girobank, but had effectively stepped into the banking system by performing tasks that would normally have been carried out within that system. In consideration for performing those tasks, Bookit received a discount on its merchant acquirer fees.”

(1)        The decision of the Court of Appeal in Bookit was released in May 2006.

(2)        T-Mobile was heard by the VAT Tribunal in September 2007, with decision released in January 2008.

(3)        AXA was heard by the High Court in April 2008, with decision released in May 2008.

Accordingly, the VAT Tribunal reached its decision in T-Mobile prior to (and thus without the benefit of) the views of the High Court in AXA, which we describe fully below.  We consider that Nordea concerns a very different factual situation; all SWIFT did was to communicate messages (it could not even access the content of those messages – see [30] of Nordea) and the ECJ held that was not a service within the scope of the exemption.  Finally, Arden LJ’s comment in AXA was explicitly a hypothetical adopted for the purposes of her ladyship’s judgment on a point which it was (again, explicitly) unnecessary to decide on that appeal.  Accordingly, we do not consider that any of those three authorities is conclusive on this point.

“[47] … the decision in Bookit does not in my judgment depend on Bookit itself having actually 'made' the transfer. It is enough that the information and other material transmitted by Bookit to Girobank had the effect of causing a transfer to be made by Girobank to Bookit in accordance with the provisions of the MSA.”

…

[69] HMRC argue for a narrow interpretation of the exemption in art 13B(d)(3) which would confine its ambit, in cases where the supplier of the service in question is not itself a bank or other institution, to a person which supplies services analogous to those supplied by a bank or financial institution. In my judgment, however, this approach is too narrow and is not warranted by the authorities. In particular, it does not do justice to the potential width of the reasoning of the ECJ in SDC, or to the decisions of the High Court and the Court of Appeal in Bookit.

Second Component: whether the “debt collection” carve out from art 13B(d)(3)  applies

“[50] It is apparent that the precise scope of the exemption and [debt collection] carve out is unclear, and will require further definition in the future. However, the authoritative determination of what falls within the exemption and the carve out is within the jurisdiction of the Court of Justice. If there is any ambiguity, therefore, it can be cured by a further reference to the Court of Justice in a future case. …”

Summary of Conclusions

(1)        The Booking Fees were received by NEC on its own behalf for services it provided (not as agent for the promoter) – see [119] above.

(2)        The Booking Fees were consideration for a card handling service – see [127] above.

(3)        The Booking Fees satisfy the requirements of art 13B(d)(3), as detailed in SDC – see [138] above.

(4)        The Booking Fees were not consideration for “debt collection” - see [139] above.

Earlier and Later Periods

Costs

Decision

PETER KEMPSTER

TRIBUNAL JUDGE

RELEASE DATE:  7 May 2013

APPENDIX

Extracts from Mr Afzal’s Witness Statement

“When The Booking Fee Is Charged

19.          The Appellant's Booking Fee income is almost exclusively generated from sales where payment is made by credit or debit cards. Typically the Booking Fee is calculated at the following rates, (although in other cases higher Booking Fees are charged for events where the market will bear it):

Ticket Price Booking Fee per ticket

0-£9.99 £1

£10-£19.99 £2

£20 - £29.99 £3

£30 plus 10% of ticket price, or as advised

20.           For the purchase of a ticket, the Booking Fee was levied in the following circumstances in the periods covered by the claim:

21.           The only method of payment accepted by the Box Office for sales by telephone or internet is credit or debit card.

22.           If payment is made over the counter, then the Booking Fee is levied for credit and debit card sales in the same way.

23.           A Booking Fee is still charged in full where the credit or debit card is used in part-payment, regardless of how much the balance is and whether it is made up by cash, voucher, cheque or postal order. This is the case irrespective of the value of the payment made by card, i.e. there is no minimum card payment for the Booking Fee to be levied. For example, for a £30 ticket when £20 is paid in cash and £10 by card, a Booking Fee of £3 would be charged.

24.           The only ways in which Booking Fees are charged in other circumstances are:

(a) Group Bookings. A group Booking Fee is charged on group bookings, which can be made in person, via telephone or post. It is levied for the use of a specialised service including dedicated hotline staffed by appropriately trained staff, the Box Office not requiring payment at the time of booking (where permitted by the promoter), and for the right to order more tickets than would otherwise be allowed. It is levied regardless of the method of payment and the group is invoiced at a later date if required. This group Booking Fee income is treated as subject to VAT at the standard rate and does not form part of the claim to which this Appeal relates. The amount of this Booking Fee income is very small (currently less than 5% of the Box Office's annual Booking Fee turnover).

(b) Postal Application Paid by Cheque or Postal Order. Broadly, these Booking Fees relate to the sale of tickets for exhibitions where the NEC directly contracts with exhibition organisers for the provision of the Box Office facility. This Booking Fee income does form part of the claim to which this Appeal relates. The Booking Fee income from this method is very small (currently around 1% of the Box Office's annual Booking Fee turnover). Individual cheque payments by post are rare and not encouraged as these are time-consuming and costly to process. For this reason, a charge is made and, to avoid unnecessary complications in the Appellant's pricing model, this is set at the same rate as the Booking Fee for credit or debit card payments. From September 2007, it was decided to stop charging a Booking Fee on this method of payment, as cheque or postal order by post was such a rarely used manner of payment.

25.           This means that the Booking Fee arises in relation to debit/credit card payments (over 94% of transactions) while Booking Fees are also charged in relation to group bookings (less than 5% of transactions and not included in the claim) and cheque/postal order payments by post (around 1% of transactions).

26.           There is also one circumstance in which a Booking Fee is not charged where a credit or debit card payment is received. That is when a gift voucher is purchased. This is a deliberate business strategy adopted by the Appellant. Partly it is to attract new customers to the venue - someone receiving an NEC gift voucher is likely to attend an NEC Event when they may not otherwise have done so and (assuming it was a positive experience) subsequently purchase tickets by debit or credit card themselves for a future NEC Event. Partly it is because it is bad business sense for anyone to try to charge, say, £11 for something with a "cash face value" of £10. For example, if someone buys a gift voucher or a book token in a store, they expect to pay only the face value of the voucher or token, and no more or no less. By contrast, the public have different expectations when buying tickets, which is why the Booking Fee can be charged in relation to tickets where payment is made using a card, but not in relation to the purchase of gift vouchers.

Booking Fee Rationale

27.           The rationale for charging the Booking Fee is that the Appellant is doing something for the customer (essentially processing the customer's payment) which the customer is willing to pay for. Like any business, if the Appellant can charge a fee for doing something for the customer which the customer is willing to and expects to pay for, then it will charge such a fee. The amount of the Booking Fee is set at such an amount to cover particular costs, including overheads such as staff costs, credit/debit card commission charges, fraud risk, and to make a profit.

28.           The fraud risk arises as follows. When a ticket is purchased over the telephone or via the internet, the Box Office is unable to record the signature of the cardholder. These types of transaction are known as CNP ("Cardholder Not Present") transactions. The Box Office operates under the risk of fraudulent credit or debit card use, as it is possible for the cardholder to dispute the authorised use of his/her card, typically when the card is used without his/her permission or knowledge. Even if the Box Office is given an authorisation code from the card issuer for the transaction, it is still possible for the transaction to be fraudulent. For instance, someone could phone up and book with a stolen card while pretending to be the card owner: the booking would proceed and an authorisation code would be issued, with the real owner only reporting the card stolen to the card issuer on discovery of the charge, potentially a month or even more later, e.g. on receipt of a credit card or bank statement.

29.           When any fraud occurs, the Box Office has no means of proving the sale was authorised as there is no signed sales voucher (in contrast to, say, a high street retailer of goods, where a customer either signs a sales voucher or enters a pin number in person). The Box Office then does not receive payment from the card issuer, or has the previous payment reversed, in all cases when the card is found to have been used fraudulently or the transaction is otherwise challenged by the cardholder.

30.           In such circumstances, the Box Office not only suffers the loss of its Booking Fee income but must also fund the cost of the ticket i.e. the loss of the ticket income is not passed onto the promoter, as the promoter does not indemnify the Box Office for any loss. In broad and simplified terms, the Box Office is running a £33 risk every time it accepts a credit or debit card ticket booking for a £30 ticket with a £3 Booking Fee. Rather than fraud occurring on a small scale for each event, it tends to be that fraudsters target a particular event heavily. Therefore if fraud does occur, it is liable to happen on a large scale.

31.           Consequently, the amount of the Booking Fee is calculated to cover the financial risk of credit or debit card fraud, to cover overheads such as staff costs and other costs such as credit/debit card commission charges, but predominantly to provide a profit margin in relation to the work involved in the processing of card payments. It remains the case, however, that the Booking Fee is for the provision of the payment handling service to the customer.

Box Office Process

32.          A typical booking process would be as follows, taking the example of a customer phoning up to book a ticket by credit or debit card:

(a) Customer contacts the Box Office by telephone to enquire about the availability of tickets for a particular concert or event;

(b) Box Office phone operator (the "Operator") checks on the Appellant's AudienceView software (which is a program that displays the arena seating on screen, with available tickets and prices) to see what tickets are available. Operator describes availability to the Customer.

(c) If Customer wishes to proceed and book a ticket, Operator adds the requested number (and type if applicable) of tickets to the order. Operator informs Customer of the ticket price and the Booking Fee and Transaction Fee for each event / type ofticket in the order;

(d) Operator completes the on-screen account sales form, by taking the following details from the Customer:

·       name;

·       address;

·       contact details (ernail address and/or telephone numbers);

·       payment method:

·       credit or debit card number;

·       security code (the three-digit number on the back of the card); and

·       expiry date (and start date and/or issue number if applicable).

(e) These details are immediately processed in the Appellant's system: card details are sent from the AudienceVicw software onto other software used by the Appellant called ServeBase, which allows the secure movement of data for electronic funds transfers ("EFT"). Through the ServeBase software, the Appellant passes the information via Streamline to the relevant card issuer.  If the card issuer accepts the transaction, it sends back an authorisation code via Streamline to the Appellant. This pops up onto the screen which the Operator is viewing - the time taken from the moment when the operator clicks to submit the transaction details to the moment this code pops up on screen is typically between five and eight seconds. The operator may use this time to provide marketing information and other promotional details to the Customer.

(f)   Once the confirmation has appeared on screen, the Operator notifies the Customer that the transaction has been authorised, quotes a unique sequential reference allocated by AudienceView as the order number for the customer to record and reiterates the delivery arrangement.

(g)   The call ends.

(h)   Every night at midnight. a file of the all of the day's credit card and debit card transactions along with the relevant authorisation codes are created using ServeBase and then sent to the card issuers via Streamline. Once these are passed to the card issuers, payment is made of both the principal amounts of the tickets and the relevant Booking Fees and Transaction Fees into to the Appellant's bank account, less any commission charged by Streamline. The Appellant holds the amounts paid for the tickets in its capacity as agent for the relevant promoter(s), and holds the Booking Fees and the Transaction Fees for itself.

(i)   The next day, or a few days later, the ticket is issued (i.e. is physically printed and placed in the envelope to be sent to the Customer, along with any additional promotional and/or informational material). A ticket will normally be issued within seven days of the call. The Box Office's objective is to maintain a high standard of customer service by issuing the tickets as quickly as possible, which also helps to mitigate the cost of call centre complaints. If there are fewer than five days until the event, then the Box Office will arrange for the customer to collect the tickets before or, in the vast majority of cases, on the day of the event.

(j)   Box Office staff will be at the event venue in order to assist those with lost tickets, those that have turned up at the incorrect venue and to issue the tickets for collection that day (as described above). These after-sales services are identical for tickets incurring a Booking Fee and those that did not and are extended to holders of tickets purchased through other Box Office suppliers.

33.          Where a cheque payment is received, the process above will stop at entering the details onto AudienceView. The payment method is selected as cheque payment, and the cheque number added to the form as a reference for payment. At the end of each day, the cheques received are placed into a secure bag and transported to the Appellant's bank where they are paid in to their account. An exercise is regularly undertaken to reconcile the total cleared cheque payments listed on the Appellant's bank statement to the recorded ticket sales where payment was by cheque.

34.          …

35.          The Appellant has a direct contractual relationship with Streamline. Under the Merchant Services Agreement with Streamline, the Appellant collects information from customers and transmits it to the card issuers via Streamline,

receives authorisation codes and then sends the transaction details, together with the codes to Streamline, as a result of which the Appellant's bank account is then credited with the relevant amounts. It is this process, and in particular the transfer of authorisation codes by the Appellant to Streamline, that causes the movement of money between the customer, the Appellant, the card issuer and Streamline.

36.          I understand that, following litigation involving Bookit and SECC, the Respondents have expressed the view that for the provision of debit and credit card processing services to be exempt from VAT, there must be a direct connection between the ticket booking function and the Card Issuer, i.e. authorisation codes must pass directly from Card Issuers to the business and not via a Merchant Acquirer such as Streamline. My comments on that are as follows:

(a) In my experience, I have never seen or heard of such a link and I consider it to be commereially unviable, unwieldy and uneconomic.

(b) At the start of the period covered by this claim, there were dozens of card issuers and over the last decade, this number has increased into the hundreds, if not thousands.

(c) Every business involving in credit card and debit card processing can choose to use a Merchant Acquirer, whose systems are already set up to deal with all of the card issuers for relevant card schemes such as VISA or Mastercard: as such, there is no commercial or other rationale for a business instead to decide to deal directly with hundreds of card issuers,

(d) It would be completely unwieldy, increase costs vastly, and would involve the business in liaising with and developing the vast infrastructure to communicate directly with card issuers, which is an area in which Merchant Acquirers, not taxpayers with box office functions, have particular expertise.

(e) This is why, in practice, businesses in general, including box office facilities such as the Appellant's Box Office, always receive their authorisation codes from Card Issuers via a Merchant Acquirer such as Streamline.”